Wichita Realtors are gearing up for round two of their fight to keep Gov. Sam Brownback from eliminating the mortgage interest deduction from state income taxes.
But as of last week, they’re not completely certain whether Brownback plans to again chase the roughly $162 million in state revenue lost annually because of the deduction. Kansas homeowners receive an average of $390.49 in tax benefit by deducting the interest they pay lenders on their home loans.
The Kansas Association of Realtors and the Wichita Area Association of Realtors are two groups preparing to oppose Brownback on the issue. This will be the second year of a lobbying effort against the elimination of the deduction, a longtime state and federal tax staple that has encouraged homeowners to buy. If the state deduction evaporates, it’s a key reason for homebuyers and sellers to stay out of the market, association officials say.
The fear is that the elimination of the mortgage interest deduction would be a death blow to a market that is just now “on its knees trying to stand,” said Luke Bell, director of governmental affairs for the KAR.
Realtors effectively beat back Brownback’s attempt last year to end the deduction. But with state finances tightening in the wake of extensive business tax cuts last year, their rhetoric has turned ominous again in anticipation of another fight in the 2013 Kansas Legislature.
“I think he would be committing political suicide,” said Gary Walker, the residential general manager at Wichita’s biggest brokerage, J.P. Weigand & Sons.
“The MID (mortgage interest deduction) is almost woven into the fabric of our society, and when you start attacking things that hurt home ownership that have been around for decades, you are barking up a very, very dangerous tree.”
“If they want a total elimination of the deduction, it’s going to be a hell of a fight,” said John McKenzie, president of one of Wichita’s biggest brokerages, Coldwell Banker Plaza. “If they don’t want to work with the homebuilders, the Realtors and the people out to protect private property rights, then it’s the charge of the light brigade.
“He (Brownback) needs to saddle up and be ready for the charge.”
But here’s the X factor: Brownback has not formally committed to his revenue goals for next year’s budget.
“The governor is still finalizing his agenda and budget for the upcoming session and will release details to legislators in January,” Brownback’s spokeswoman Sherriene Jones-Sontag said last week.
There is substantial worry in Wichita that the city’s wobbly housing market, which has only recently began to recover from the 2008 economic collapse, couldn’t withstand the elimination of the deduction.
“It’s a confidence issue,” said Tessa Hultz, who heads WAAR.
“We have spent two years talking about how businesses aren’t hiring, how they’re unsure of the tax climate. I think it would have a very similar effect on the buying and selling public. If you are a homeowner, it will feel like a tax increase.”
Hultz said no state has stepped away from the federal tax code, which allows a tax deduction for mortgage interest.
“It would make Kansas the first and not in a good way,” she said.
Bell, with the Kansas Association of Realtors, said his group is certain public opinion is against Brownback on the issue. He said their polls show that 63 percent of Kansans oppose any move to eliminate the mortgage interest deduction as part of a bigger plan to cut state income taxes.
But both the Wichita and state Realtor groups say they’re willing to take a look at the deduction if Brownback agrees to eliminate state income taxes.
“Obviously, the deduction is only as valuable as the income tax rates,” Bell said. “If there’s no income tax, then you don’t need a deduction.”
Bell said the KAR would be open to considering a phase-out of the deduction as personal income tax rates are lowered by the state.
“If the governor’s office chooses that approach,” Bell said, “we might consider that a reasonable attempt at compromise.”
But eliminating the deduction to help pay for last year’s business tax cuts is a formal declaration of war on the housing industry, the officials said.
“The things we will close the door upon include outright elimination,” Bell said. “That’s non-negotiable, and we’ll never support anything getting rid of it. We consider it a bedrock of U.S. housing policy.”